Demographic Dividend

updated October 2016

A useful indicator for the demographic transition in a country is its “dependency ratio”. This compares the number of juveniles and senior citizens with those of working age who support them, either directly or through government services funded by taxation.

A high dependency ratio is causing considerable concern in mature economies, where funding of health, care and pension provision is inadequate to support ballooning numbers of older people, living ever longer.

By contrast, many poorer countries at an earlier stage of the demographic transition with low dependency ratios should be able to face the future with more confidence, their populations dominated by potentially productive young people. The UN’s World Population Prospects 2015 records that “African countries, on average, have 12.9 people aged 20 to 64 for every person aged 65 or above.” In seven European countries and in Japan this ratio is less than three.

The economic potential of young populations is often described as the “demographic dividend” and has been associated with the tiger economies of East Asia. Some economists interpret recent strong rates of growth in Africa as evidence of this demographic dividend. Others fear that the poor quality of education and training will stifle the potential.

Very high rates of youth unemployment do indeed persist in Africa and the Middle East. The demographic dividend is a fleeting opportunity which can quickly overturn into social unrest, as illustrated by the dramatic events of recent years in several Arab countries.

Many development economists hold a more nuanced view of the demographic mismatch between developed and developing countries. This view suggests that, in parallel to any economic dividend, the imbalance will be a long term driver of labour migration, ultimately increasing the static populations of Europe and North America.

For the time being, politicians shrink from the rational solution of encouraging migrant workers from African countries and others with low dependency ratios.  They prefer to provide tax breaks and other incentives for women to have more children. The presence of such incentives in no fewer than 56 countries, including Denmark, Germany and Japan, is an awkward context for lecturing poorer countries on population control.

It has to be noted that the rational economic theories associated with dependency ratios and the demographic dividend are far from proven in practice. There is some evidence that ageing populations are self-reliant, thanks to the resilience of mature families backed by lifetime savings. Young women do not seem to respond to financial incentives to have more children. And market forces that should influence labour migration are being overwhelmed by unrelated political imperatives.

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Harnessing the demographic dividend in Africa
Al Jazeera interview with Eliya Zulu, Executive Director and founder of the African Institute for Development Policy


Demographic Dividend explained
by UN Population Fund

more Population briefings
Introduction
World Population Projections
Demographic Transition
Population and Development
Opposition to Family Planning
Overpopulation or Overconsumption?
Source material and useful links

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